Giving fraud a bad name: The Ponzi scheme

Charles Ponzi didn’t invent his eponymous pyramid scheme — but he lent star power to one of the oldest scams in the book. He also believed that his plan could have become a legitimate business.
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Charles Ponzi didn’t invent his eponymous pyramid scheme — but he lent star power to one of the oldest scams in the book. He also believed that his plan could have become a legitimate business.
By

The founder of a South Florida real estate company pleaded guilty Wednesday to orchestrating a $1.3 billion Ponzi scheme that bilked thousands of mostly elderly investors.

Robert H. Shapiro, the former CEO of the Woodbridge Group of Companies, admitted in Miami federal court that he “misappropriated” between $25 million and $95 million of the investors’ money to himself and his family to pay for an estate in the Los Angeles area, chartered planes, global travel, jewelry, diamonds and vintage wines. Shapiro also collected artworks by Pablo Picasso, Marc Chagall, Pierre-August Renoir and Alberto Giacometti. He also owned a Mercury convertible.

Now, all those luxury items belong to the feds.

Shapiro, 61, who was arrested in April, faces up to 20 years for wire and mail fraud conspiracy and an additional 5 years for tax evasion at his sentencing on Oct. 15 before U.S. District Judge Cecilia Altonaga. In pleading guilty, Shapiro avoids going to trial but still is looking at a total of 25 years in prison.

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“He came to the conclusion he would like to take responsibility for his actions,” Shapiro’s defense attorney, Ryan O’Quinn, told the judge.

Among the roughly 9,000 Woodbridge victims of Shapiro’s oft-described Ponzi scheme: Retired doctors, teachers and at least one high-profile investor — ABC News anchor George Stephanopoulos — who were promised 5 to 10 percent returns while financing high-end properties purchased in Beverly Hills, Aspen and other wealthy enclaves. Of the total number of Woodbridge investors, about 700 reside in Florida.

Woodbridge investors said they felt deceived by the company’s team of representatives who persuaded them to invest their retirement savings at sales pitches at South Florida hotels and restaurants. They thought their investments would be safe because they were backed by hard assets — real estate.

But that was far from the truth. At his plea hearing Wednesday, Shapiro not only admitted siphoning millions to himself but also used bank accounts and credit cards opened in his wife’s name to divert millions more to his family. His wife, however, won’t be prosecuted as part of his plea deal with the U.S. Attorney’s Office.

Before his arrest, Shapiro was living in a California mansion where he ran his real estate investment company, which was originally founded in Boca Raton. Woodbridge collapsed amid allegations of securities fraud as well as a bankruptcy filing in late 2017.

Shapiro and two Woodbridge senior executives, Dane Roseman, a former managing director, and Ivan Acevedo, who had also once held that position, were charged with conspiring to commit wire and mail fraud as well as money laundering. All three businessmen were arrested in April by FBI and Internal Revenue Service agents in Los Angeles.

Roseman and Acevedo, who pleaded not guilty, are scheduled for trial in February.

In late 2017, Woodbridge’s real estate dealings crumbled as Shapiro and his company ran out of money to pay old investors with funds from new ones, leading to a bankruptcy filing in Delaware, a crackdown by the Securities and Exchange Commission and a federal indictment filed by prosecutors Roger Cruz and Lisa Miller in Miami.

The scope of Shapiro’s scheme was not unlike the racket run by convicted Fort Lauderdale lawyer Scott Rothstein, who sold fabricated legal settlements to rich investors totaling $1.2 billion before the scheme unraveled a decade ago. Rothstein’s victims, however, were a much smaller group of wealthy investors from Florida, New York and Texas.

In January of this year, the SEC announced the resolution of its civil dispute with Woodbridge, hundreds of related companies and Shapiro. They agreed to pay $1 billion, including penalties, that might eventually compensate investors who had bought mortgage notes in the real estate investments. Woodbridge’s most celebrated purchase was the “Owlwood” estate in the Holmby Hills section of Los Angeles, which has previously been owned by Tony Curtis and by Sonny and Cher. It is now listed on the market for $115 million.

In the SEC case, U.S. District Judge Marcia G. Cooke approved civil judgments against Woodbridge and its 281 related companies, requiring them to pay $892 million. The judge also approved the judgment against Shapiro, requiring him to pay a $100 million civil penalty as well as $18.5 million in ill-gotten gains plus $2.1 million in interest.

Woodbridge’s representatives sold “first position commercial mortgages” to thousands of investors who financed the company’s real estate purchases through unsecured loans, according to court records. Woodbridge and its agents violated securities laws because they operated as broker-dealers by selling mortgage notes as securities without properly informing investors of the risks and other issues.

Shapiro and his company also made Ponzi payments to investors and used a web of shell companies to conceal the scheme, which spanned five years before Woodbridge’s collapse in December 2017, according to authorities.

Under the SEC settlement, funds would be paid back to Woodbridge’s investors through the liquidation of its various real estate holdings, mostly in California and Colorado. The money would be repaid on a pro rata basis, less the interest that investors already received on their principal from Woodbridge before its Ponzi scheme collapsed.

In theory, Woodbridge’s thousands of investors, who sank from $25,000 to $1 million into its real estate properties, could receive a percentage of their investments, depending on the sale of the company’s real estate holdings.

Jay Weaver writes about bad guys who specialize in con jobs, rip-offs and squirreling away millions. Since joining the Miami Herald in 1999, he’s covered the federal courts nonstop, from Elian’s custody battle to A-Rod’s steroid abuse. He was on the Herald team that won the Pulitzer Prize for breaking news in 2001. He and three Herald colleagues were Pulitzer Prize finalists for explanatory reporting in 2019 for a series on gold smuggled from South America to Miami.